Not too long ago, optical-components manufacturer and supplier Bookham (NASDAQ:BKHM) was marching from penny-stock obscurity to the big leagues. Over the past year, the stock has climbed from less than $3 to more than $10 a stub, helped in recent weeks by an endorsement from TheStreet.com's Jim Cramer and his Mad Money program.

Bookham seems to have lost that momentum, though. It now expects to lose more than $10 million to $12 million in its third quarter, more than four times the $2 million to $3 million it previously forecast. The company is moving its operations to China to capitalize on the lower costs there, but it did not anticipate some of the expenses associated with that move. Additionally, the company says that it sold more lower-margin products than it anticipated, which reduced gross margins by more than half; they fell from an expected 23% to 27% to a 10% to 12% range. The lower-margin sales left the company's semiconductor fabrication facilities underutilized, siphoning off profits.

Bookham makes optical components for the communications industry, including lasers, optical amplifiers, transmitters, and receivers. Nortel Networks (NYSE:NT), Bookham's largest customer, accounted for 45% of its revenues in 2005. Cisco (NASDAQ:CSCO) also uses Bookham products to run its systems.

The company had acquired Nortel's optical components business back in 2002 in return for a supply agreement. As part of that deal, Nortel had agreed to purchase certain components that Bookham would no longer manufacture after a certain date. Those "last-time buy" orders were expected to be largely completed at the end of this year's second quarter (which ended in December), and the company expected dwindling future revenues from Nortel.

That didn't stop Bookham's stock advance, though. As the company paid off its long-term debt, it seemed to be creating a sturdier foundation for its future. That perception was underscored by Cramer's blessing this past February. But Bookham has had a rough time gaining profitability, recording losses of more than $7 a share in 2005.

The company's revenues are higher year over year, reflecting the sturdier prices Bookham was able to negotiate with Nortel for those legacy purchases. However, those prices continue to drift downward, taking revenues with them. Low prices have also plagued competitors JDS Uniphase (NASDAQ:JDSU) and tiny Avanex (NASDAQ:AVNX).

Bookham Quarterly Revenues

Quarter

2006

2005

2004

Q1

62.6

43.6

n/a

Q2

60.7

45.8

n/a

Q3

53*

49.9

41

Q4

53*

61

38.8

Total

229.3

200.3

79.8
Figures in $millions.
*Estimated.

As a former JDS Uniphase investor at the company's height, this Fool sees that the news from Bookham shows that this sector is still far too tenuous to jump back into. Between Bookham, JDS, and Avanex, there are too many broken parts trying to make a grab, even if a company like Finisar (NASDAQ:FNSR) has achieved the profitability the others seek. Once bitten, twice shy, I say; I'll sit on the sidelines watching the optical components sector sort itself out.

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Fool's disclosure policy is always in focus.